Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 10—INCOME TAXES

The components of our income (loss) before income taxes were (in millions):

	Year Ended December 31,
	2023		2022		2021
United States	$	145	$	106	$	(14	)
Foreign		8		4		—
	$	153	$	110	$	(14	)

Income taxes included in the consolidated statements of operations consist of (in millions):

	Year Ended December 31,
	2023			2022			2021
Current:
Federal	$	34		$	30		$	10
State		7			6			2
Foreign		5			6			3
		46			42			15
Deferred:
Federal		(3	)		(6	)		(14	)
State		—			(1	)		(2	)
Foreign		(4	)		—			1
		(7	)		(7	)		(15	)
Income tax expense	$	39		$	35		$	—

Our effective tax rate varied from the statutory federal income tax rate for the following reasons (in millions):

	Year Ended December 31,
	2023			2022			2021
Federal tax expense (benefit) at statutory rates	$	32		$	23		$	(3	)
State taxes		6			4			(1	)
Nondeductible expenses and other		3			4			1
Foreign operations taxed at different rates		4			3			—
Change in valuation allowance		(6	)		1			3
Income tax expense	$	39		$	35		$	—
Effective tax rate		25	%		32	%		0	%

Significant components of our deferred tax assets and liabilities are as follows (in millions):

	December 31,
	2023			2022
Deferred tax assets:
Accruals and reserves	$	12		$	12
Net operating loss and tax credit carryforwards		57			60
Other		3			3
Subtotal		72			75
Valuation allowance		(57	)		(63	)
Total		15			12
Deferred tax liabilities:
Inventory valuation		(12	)		(11	)
Property, plant and equipment		(4	)		(6	)
Intangible assets		(39	)		(43	)
Total		(55	)		(60	)
Net deferred tax liability	$	(40	)	$	(48	)

We record a valuation allowance when it is more likely than not that some portion or all of our deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. When we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

In the United States, we had approximately $13 million of state net operating loss (“NOL”) carryforwards as of December 31, 2023, which will expire in future years through 2032, and $1 million of foreign tax credit (“FTC”) carryforwards, which will expire in future years through 2027. In certain non-U.S. jurisdictions, we had $190 million of NOL carryforwards, of which $161 million have no expiration, and $29 million will expire in future years through 2043. We believe that it is more likely than not that the benefit from U.S. state NOL and FTC carryforwards and a significant portion of the non-U.S. jurisdiction NOL carryforwards will not be realized. As such, we have recorded a valuation allowance on the deferred tax assets related to the $13 million United States NOL carryforward, $176 million non-U.S. jurisdictions NOL carryforward and $1 million FTC carryforwards.

Dividends from the earnings of our foreign subsidiaries subsequent to 2017 are eligible for a 100% dividend exclusion in determining our U.S. federal taxes. As such, we do not expect future dividends, if any, from the earnings of our foreign subsidiaries to result in U.S. federal income taxes. Deferred tax liabilities arising from the difference between the financial reporting and income tax bases inherent in these foreign subsidiaries, referred to as outside basis differences, have not been provided for U.S. income tax purposes because we do not intend to sell, liquidate or otherwise trigger the recognition of U.S. taxable income with regard to our investment in these foreign subsidiaries. Determining the amount of U.S. deferred tax liabilities associated with outside basis differences is not practicable at this time.

Our tax filings for various periods are subject to audit by the tax authorities in most jurisdictions where we conduct business. We are no longer subject to U.S. federal income tax examination for all years through 2019 and the statute of limitations at our international locations is generally six years or seven years.

At both  December 31, 2023 and 2022, our unrecognized tax benefits totaled $1 million.